For over a decade, San Nian Jian, in Shanghai’s former French Concession area, operated as a wine bar where people could sip and relax. Founder Leon Liang would hold wine tastings to educate tipplers from the rising middle and upper classes.

However, the business was hit so hard during the pandemic that last year, Liang pivoted and turned it into a wine shop, where people can buy bottles to take home or to gatherings.

In 2021, when it was a wine bar, Liang said, “every month we [could] sell roughly around 1,500 bottles. But now, every month we can sell over 3,500 bottles.”

Wine sellers are having a tough time in China, and they were having one even before the pandemic. Sales have been declining for the past six years. Forty percent of the wines consumed in China are domestically produced, so imports play a key role. According to the China Association for Imports and Exports of Wine and Spirits (CAWS), wine imports in 2023 were one-third the level of 2017, with their value falling by about 60% to $1.2 billion.

Some in the industry said China’s wine sales were due for a slowdown after years of explosive growth.

“China’s wine market really began in 2001, when the country entered the World Trade Organization. Afterwards, the tariffs on wine imports went from 65% to 14% within three years” said wine consultant Yin Kai of Alliquido Brand Management in Shanghai. “So, 2004 onwards, wine, especially imported ones, entered a rapid growth period until 2017.”

At a big annual wine show in Shanghai in November, wine vendors described that initial growth period as “crazy” and “mad.”

“I’m such a small trader, [yet] I sold so much that [for] 30 days I did not even have time to [go] home,” Australian wine exporter Vikas Gupta said. He has been coming to China’s wine shows since 2008.

Gupta’s sales are down as much as 70% since the pandemic. “After COVID, consumption had changed,” he said. “I think emotionally people are not spending money on wine.”

He also partly blames his sales decline on China’s crowded wine market.

Walk around this trade show and count the number of labels, he said. “The consumer is lost. There are 200,000 to 300,000 [wine] products to choose from.” In response, he is diversifying his product line and also selling Scotch whisky.

China’s economy is another weight on wine sales. Flagging growth has hurt the industry.

“The wine here is used for the business. [Companies] use the wine to give some presents to good clients,” said Sebastien Carreau, a seventh-generation winemaker with France’s Vignobles Carreau Selection. “So, if you don’t have any business, you don’t have to give [wine].”

His sales are only 40% of what they were in 2019. Carreau is diversifying his markets, with an eye to the U.S. and Europe.

The wine industry is also vulnerable to geopolitics. When Australia’s government wanted to probe the origins of COVID in 2020, China retaliated.

In 2020, China launched an investigation into Australia for unfair subsidies and dumping. It increased the tariff on Australian wine by as much as 200%, Yin said. “Sales of Australian wine in China fell off a cliff in 2021 and 2022.”

China lifted those punitive tariffs last month.

However, the tariffs on American wine are still in place because of ongoing trade tensions. American wine exports to China, according to CAWS, were $51 million in 2023, dropping by about one-third from 2017.

Liang does not carry American labels at his wine shop because, he said, they are too costly to distribute. In addition to China’s retaliatory tariffs, production costs for U.S. wine are higher.

“If you’re talking about fine wine, for example a cabernet sauvignon from Napa Valley [in California], normally the cost is around 300 yuan [$40] to 500 yuan ($70),” he said, adding that once he tacks on his profit margin, the retail price would be a lot higher than some popular French and Italian wines he sells.

Even so, producers and sellers have reason to be hopeful about wine sales in China, according to Yin. The country still ranks among the world’s top 10 wine-consuming nations.

“Wine makes up only 2% of China’s [alcoholic drink market],” Yin said. The preferred drinks in China are beer and a fiery grain alcohol called baijiu.

“China is still a largely untapped market for wine. There’s still a lot of potential for expansion,” Yin said.

For the same reason, Abdukhalilov Rysbek has started importing wine from his native Moldova.

“We want to enter the Chinese market mainly because of the war in Ukraine. We used to be able to sell 15 million bottles a year to Russia and Ukraine. Once the war began, we lost both markets,” he said while tending to his booth at the trade show.

Even NBA star James Harden made a stop in China when he started a wine label.

Last summer, he appeared on the popular e-commerce livestream channel “Crazy Young Brother.” A set of his red wines reportedly went for 436 yuan ($60). Ten thousand bottles of Harden’s wine were sold within five seconds. In the video, Harden is seen laughing and in shock.

But his success may have had more to do with the popularity of “Crazy Young Brother,” according to Liang.

“You can ask Harden to go for another channel with less well-known [hosts], I think the sales [would be lower],” he said.

Liang said it’s tough to get good profit margins selling wine online. Instead, he is banking on brick-and-mortar shops. He just opened his third branch in Shanghai, in an area with many midrange restaurants. “And all the restaurants have very poor wine lists,” Liang said.

He reckons that if diners see his shop and have heard that he is a five-time champion at blind wine-tasting competitions in China, they might buy a bottle from him for 300 yuan ($40) and take it to the restaurant. Many restaurants in Shanghai don’t charge extra for bringing your own bottle.

Liang also has a wine shop in Chongqing city, where residents don’t have as much spending power as those in Shanghai. In Chongqing, he sells wine in packs of six so the average bottle costs 99 yuan ($14). Next, he is looking at branching out to the eastern Chinese city of Hangzhou, the headquarters of tech giant Alibaba.

“I think the Chinese market is recovering,” Liang said. “More and more people, they are still drinking wine. They are looking for [fine] wine [at an affordable] price.”

Additional research by Charles Zhang.